2:50 pm
Understanding the current market situation leads us to the Japanese Yen and the “carry trade.” The current market had been propelled by declining domestic interest rates until March 2020, when the 10-year rate started to rise from 0.0398% to October 23, 2023 when it reached 49.98%.
What propelled the market further as our domestic rates rose was that the Bank of Japan. IT was still willing to lend unlimited sums at 0-.10%, which it had been doing since 1999. What’s more, the Japanese Yen had peaked at 98.83 on March 9, 2020 and started to decline, meaning that a person could make money simply by borrowing at 0.00-0.01% and simply parking it.
Last week it all changed when the Bank of Japan decided to raise rates from 0.10% to 0.25%, sending the Yen skyrocketing. All the currency gains of the past 10 months have suddenly disappeared while the equities market began to flounder.
Today may have been the end of the current Master Cycle, suggesting the Yen will come back down. However, the damage has been done.
BBCNews reports, “Japan’s central bank has raised the cost of borrowing for only the second time in 17 years as it tries to normalise monetary policy in the world’s fourth largest economy.
The Bank of Japan (BoJ) increased its key interest rate to “around 0.25%” from the previous range of 0% to 0.1%.
It also outlined a plan to unwind its massive bond buying programme as it eases back from a decade of stimulus measures.
The move comes hours before the US Federal Reserve is set to announce its latest interest rate decision, while an announcement is also expected from the Bank of England on Thursday.”
2:26 pm
SPX may be testing a double resistance at 5303.00-5308.00, including the 100-day Moving Average. As mentioned earlier, tomorrow may be a panic down day. This may be a good opportunity to sell the bounce. Many individuals and hedge funds have been “buying the dip.” While a good practice while the market is going up, it may be deadly on the downside. Patience is needed here.
11:01 am
BKX, our liquidity proxy, has found support at the trendline at 102.50. Resistance may be at the 50-day Moving Average at 106.40. A further decline beneath the trendline may introduce the next panic decline in the BKX. The Banking Index may be considerably lower by the end of the week. Panic days reappear during the week of August 19 and August 26.
8:15 am 2 Chronicles 7:14
“If my people, which are called by my name, shall humble themselves, and pray, and seek face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sins, and will heal their land.”
Good Morning!
NDX futures bounced to 18319.70 this morning, above the 200-day Moving Average at 17657.00, but nowhere near a breakout of any significance. A stumble back beneath the mid-Cycle support at 17898.00 tells us the decline has resumed. There are no significant support levels until it reaches the Cycle Bottom at 15400.00. The Cycles Model tags tomorrow as the next panic down day. Buying the dip at this point may be like catching falling knives.
Today’s options chain shows short gamma beginning at 18000.00. There may not be any long gamma to speak of. Buyers of calls are becoming scarce.
ZeroHedge observes, “In March, Nvidia Corp. disclosed that CEO Jensen Huang’s Rule 10b5-1 trading plan included selling 600,000 shares (or about 6 million shares accounting for the 10-for-1 stock split) by March 31, 2025. He has already sold millions of shares, effectively top-ticking the market. This news should have served as a clear warning sign to investors that the AI bubble was approaching a peak.
Data from Bloomberg shows Huang’s daily sale of 120,000 shares began on June 13. The selling was indiscriminate. Most of it was sold between $135 and $109 from June through July. The selling continued into the downward draft in recent days.”
SPX futures rose to 5276.00 this morning, unable to overcome yesterday’s opening gap down and short of the 100-day Moving Average at 5307.00. The 1987 trendline lies just beneath it at 5119.00. A decline beneath it may offer support at the 200-day Moving Average at 5011.72. The Cycles Model offers two conflicting scenarios for this decline. The first shows the bottom occurring during the week of August 12. The second shows a possible further decline during the week of August 26. We may consider taking downside profits in the first case, but delay any long until the last week of August.
Dealers may have attempted to raise the SPX out of short gamma, which starts at 5245.00. That effort may have failed.
ZeroHedge reports, “After Monday’s historic selloff that capped a three-week, $6.4 trillion rout in global equities as a brutal unwind in the carry trade driven by last week’s BOJ rate hike hammered most consensus trades, a dead cat bounce arrived as some investors looked for bargains and markets saw a hint of calm return on Tuesday, but the rebound has been decidedly more tepid than the rout, and doesn’t prove the meltdown is over. Futures on the S&P 500 and Nasdaq are poised to regain only a fraction of yesterday’s loss, while stocks in the UK and Europe gave up earlier gains to head lower. There were stronger moves in Japan, where the two key share gauges both jumped more than 9% at the close after tumbling 12% the day before. US futures higher in a volatile, shaky session, with small caps lagging the Nasdaq, as USD finds support and Japanese Equities rally 10% overnight, erasing much of Monday’s loss. As of 7:45am, S&P futures were up 0.8%, off session highs, while Nasdaq futures rebounded 1.1% falling more than 7% over past three sessions. That said, much of the overnight gains were pared after JPM’s co-head of FX Strategy Arindam Sandilya said that we may only be 50% – 60% through this carry trade unwind. Bond yields are 5-6bps higher as treasuries retreated, with the 10-year yield heading for the first increase in almost two weeks as traders curbed bets that the Federal Reserve will step in to support markets with early interest rate cuts. Commodities are weaker, with WTI and gold modestly in the green. For the remainder of the week, the macro catalysts are bond auctions and Fedspeak.”
VIX futures are flat this morning after yesterday’s spike high at 65.73. The Cycles Model shows a possible three more weeks of rally in the VIX. It appears to be out of sync with the SPX Cycle and bears watching. The target may still be the 2020 high at 85.47.
In tomorrow’s op-ex, the shorts are redoubling their positions so that short gamma now begins at 18.00, suggesting that options buyers are still treating yesterday’s move as a short opportunity. Long gamma is practically nonexistent. This behavior is extremely odd.
TNX may have made a Master Cycle low yesterday. Proof of that event may be a rise above the Cycle Bottom at 38.51. The activity of the last week appears to have been a throw-under beneath its trading channel. Should that be the case, we may see TNX back in rally mode by the end of the month. The trendline may be tested prior to a meaningful rally.